Housing Watch Ireland - Affordability and uncertainty biting - Bank of Ireland Corporate
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Housing Watch
Ireland
August 2019
Affordability and uncertainty
biting
A good way through 2019 and judging by the data available to date, the housing
market has put in a rather lacklustre performance. The appreciable slowing
in the annual rate of price inflation has attracted plenty of attention,
and with property sales relatively subdued and housebuilding and mortgage lending
advancing at a solid but more moderate pace, overall momentum looks to have
faltered a bit. In some respects this is a surprising turn of events. Fundamentals like
demographics, employment and income growth remain favourable after all and there
is still a sizeable gap between demand and supply. But in others it is not. Recent
years have seen more supply come on stream while stretched
affordability, especially in Dublin, means the Central Bank’s mortgage
rules are now more binding. Heightened uncertainty has also
been a factor of late. Growing fears of a ‘no deal’ Brexit and the implications for
the economy are unnerving households and builders alike, while speculation about
the future of the ‘Help to Buy’ incentive for first time buyers is not helping matters.
Against this backdrop, our Housing and Construction Pulses - which respectively
track price expectations among households and sentiment among construction
firms - could well soften further in the months ahead.
Economic Research UnitHousing Pulse
Good Time
40% To Buy
100 92.5
January 2016 69% To Sell
July 2019
Planning to Buy/Build
Next 12 Months
1 in 10 Definitely/Possibly
Expectations Buy versus Rent
Next 12 Months
For
75% Think it is
Connacht/Ulster
Rest of Leinster
Sale cheaper to Buy
National
Munster
Dublin
House Prices
> 5% 21% 25% 20% 20% 20%
To
Let 13% Think it is
cheaper to Rent
1-5% 38% 35% 41% 40% 34%
Planning to Spend on Home Improvements
Rents Next 12 Months
> 5% 23% 27% 22% 23% 21%
1-5% 42% 45% 42% 42% 40% 24% Likely
Note: Rest of Leinster refers to Leinster excluding Dublin, Ulster only refers to Cavan, Donegal and Monaghan
July 2019
Disclaimer: This document has been prepared by the Economic Research Unit at The Governor and Company of the Bank of Ireland (“BOI”) for information purposes only and BOI is not soliciting any action based upon it. BOI believes any information
contained herein to be accurate but does not warrant its accuracy and accepts no responsibility, other than any responsibility it may owe to any party under the European Communities (Markets in Financial Instruments) Regulations 2007 as may be
amended from time to time, and under the Financial Conduct Authority rules (where the client is resident in the UK), for any loss or damage caused by any act or omission taken as a result of the information contained in this document. BOI acknowledge
the financial contribution made by the European Union for carrying out the Irish element of the Joint Harmonised EU Programme of Business and Consumer Surveys. Any survey data communicated or published in this document reflects only the view
of BOI and the European Commission is not responsible for any use that may be made of the information. Any decision made by a party after reading this document shall be on the basis of its own research and not be influenced or based on any view
expressed by BOI either in this document or otherwise. This document does not address all risks and cannot be relied upon for any investment contract or decision. A party should obtain independent professional advice before making any investment
decision. Expressions of opinion contained in this document reflect current opinion as at 26/7/2019 and is based on information available to BOI before that date which is subject to change without notice. This document is the property of BOI and
its contents may not be reproduced, either in whole or in part, without the express written consent of a suitably authorised member of BOI. By accepting this document, the recipient agrees to be bound by the foregoing limitations. Bank of Ireland
is regulated by the Central Bank of Ireland. In the UK, Bank of Ireland is authorised by the Central Bank of Ireland and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation
Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by the Financial Conduct Authority are available from us on request. Bank of Ireland incorporated in Ireland with limited liability.
Registered Office - Head Office, 40 Mespil Road, Dublin 4, Ireland. Registered Number - C-1.Demand
30
Supportive demographics
25
Population growth is continuing apace, with a relatively
large share in the prime house buying age bracket of 20
Ireland Spain UK Euro Area Germany Italy Netherlands France
25-44 years.
Population Aged 25-44 Years (% of total)
Source: Eurostat
2.4
Full employment
2.0
Employment grew by 3.7% year-on-year in Q1 2019 –
taking the total in work to a record high of over 2.3 million 1.6
2007 08 09 10 11 12 13 14 15 16 17 18 19
– while the unemployment rate stood at 4.6% in July.
Employment (millions of persons)
Source: CSO
4.6
Affordability biting
3.5
While incomes are rising on the back of the tight labour
market, house prices are now at a level that is stretching 2.4
2012 13 14 15 16 17 18 19
affordability, particularly in Dublin. National Dublin Dublin Commuter Cork/Galway/Limerick/Waterford
First Time Buyers Property Price to Income (median ratio)
Source: BPFI
8000
Subdued transactions
6000
4000
With the Central Bank’s mortgage rules becoming more 2000
binding and Brexit on minds, the number of properties 0
2010 11 12 13 14 15 16 17 18 19
transacted in the opening months of the year was muted.
House Transactions (number of units)
Source: Property Services Regulatory Authority
3
Lending continuing
2
1
The annual rate of increase in the volume and value of
mortgage drawdowns has moderated a little, but remained 0
2011 12 13 14 15 16 17 18 19
solid at 8.8% and 11.7% respectively in Q2.
Mortgage Drawdowns (value, ebns)
Source: BPFI
5000
More on the cards
2500
Mortgage approvals appear to be recovering from a soft
start to 2019, with double digit increases in first time buyer 0
2018 19
activity in the year to June in both volume and value terms. First Time Buyers Mover Purchases Other
Mortgage Approvals (number)
Source: BPFISupply
50
Residential growth
25
0
-25
Investment in residential dwellings (new builds and
improvements) rose again in Q1 2019, by 13.3% year- -50
2007 08 09 10 11 12 13 14 15 16 17 18 19
on-year.
Residential Dwellings Investment (annual % change, constant prices)
Source: CSO
7000
Set to continue
3500
9,185 new dwellings were completed in the first half of
the year, with starts data indicating that more homes 0
Q1 Q2 Q3 Q4 Q1 Q2
will be coming on to the market in the period ahead. 2018 2019
New Dwelling Completions Housing Starts (number of units)
Source: CSO & Department of Housing, Planning and Local Government
100
Dublin leading the way 75
50
Dublin and surrounding areas have been to the fore on 25
the supply front. The capital accounted for over 38% of 0
13 15 17
2011 12 14 16 18
the units built last year though data for this year has been Dublin ROL* Munster Connacht/Ulster*
New Dwelling Completions (% of total)
a touch softer. *Rest of Leinster refers to Leinster excluding Dublin. Ulster only refers to Cavan, Donegal and Monaghan
Source: CSO
Uncertainty a headwind Uncertainty about Economic Policy
Labour Shortages
Demand
Brexit and uncertainty about sector specific policies are Financing
weighing on construction activity at the current juncture, Weather Conditions
with labour shortages another concern.
Main Factors currently limiting Building Activity
Source: Bank of Ireland
Stock for sale rising 70000
50000
30000
There was an average of 23,500 properties for sale each
month during H1 according to Daft.ie, somewhat higher 10000
2007 08 09 10 11 12 13 14 15 16 17 18 19
than the same period a year ago. Housing Stock for Sale (units)
Source: Daft
70
Selling sentiment stabilising
With house price growth easing, the number of
households who think now is a good time to sell has
20
steadied around the seven in ten mark. 2016 17 18 19
Good Time to Sell (% of households)
Source: Bank of IrelandPrices
40
Inflation cooling
0
Annual house price inflation has been slowing since mid-
2018, with the national rate down to 2.0% in June of this -40
2007 08 09 10 11 12 13 14 15 16 17 18 19
year and the Dublin rate flatlining around 0%. National Residential Property Prices Dublin Ex Dublin (annual % change)
Source: CSO
120
Same for expectations
110
100
Price expectations have also been softening for some time
and July saw the Housing Pulse post its lowest reading 90
2016 17 18 19
to date. Housing Pulse (Jan 2016=100)
Source: Bank of Ireland
Regional picture >5% 25% 20% 20% 20%
1%-5% 35% 41% 40% 34%
Three in five households in Dublin, the Rest of Leinster and
Munster and over half in Connacht/Ulster still think prices Dublin ROL* Munster Connacht/Ulster*
will go up in the next 12 months though. House Price Expectations Next 12 Months (% of households)
*Rest of Leinster refers to Leinster excluding Dublin. Ulster only refers to Cavan, Donegal and Monaghan
Source: Bank of Ireland
Rents
20
Tight market
0
While the pace of increase in private rents has eased,
there are not enough properties to let which contributed -20
2007 08 09 10 11 12 13 14 15 16 17 18 19
to the 5.6% year-on-year rise in July. Private Rents (annual % change)
Source: CSO
Across the country >5% 27% 22% 23% 21%
A majority of households in all regions expect rents to go 1%-5% 45% 42% 42% 40%
up in the next 12 months, with those in Dublin leading Dublin ROL* Munster Connacht/Ulster*
Rent Expectations Next 12 Months (% of households)
the charge. *Rest of Leinster refers to Leinster excluding Dublin. Ulster only refers to Cavan, Donegal and Monaghan
Source: Bank of Ireland
Buying trumps renting Cheaper to Buy
Three in four think its cheaper to buy than rent in their Cheaper to Rent
area, and with rent inflation outpacing house price 0 25 50 75
growth, this is likely to continue for a while. Buy versus Rent (% of households)
Source: Bank of IrelandPolicy
Rental sector reforms
Rent controls have been extended to the end of 2021 and
broadened to include a further 19 areas meaning roughly Rent Pressure Zones
65% of renters are covered by the measure. Source: Department of Housing,
Planning and Local Government
First Time Buyers
End of Help to Buy?
Mortgage Deposit
Up to
The scheme to help first time buyers with the deposit Minimum
needed to purchase a new house is due to expire 90% 10%
in December, though there is speculation that the
Government may extend it.
Source: Central Bank of Ireland
Upcoming Events
ECB Budget House
Meeting 12th 2020 8th Prices 14th
Sept
House
House
12th Prices 10th Mid
Prices
Jul
September Aug October November
Mortgage
Drawdowns Q3
ECB
Planning
Permissions 13th Meeting 24th Late
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25th
Pulse Nov Mortgage
Central Bank
30 th
Mortgage 29 th
Mortgage
Late Review of
Approvals
Oct
Approvals Housing Pulse Approvals Mortgage
Housing Pulse Sept Aug Oct Sept Measures
Contact Us
economics@boi.com
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Disclaimer: This document has been prepared by the Economic Research Unit at The Governor and Company of the Bank of Ireland (“BOI”) for information
purposes only and BOI is not soliciting any action based upon it. BOI believes the information contained herein to be accurate but does not warrant its
accuracy nor accepts or assumes any responsibility or liability for such information other than any responsibility it may owe to any party under the European
Union (Markets in Financial Instruments) Regulations 2017 as may be amended from time to time, and under the Financial Conduct Authority rules (where
the client is resident in the UK), for any loss or damage caused by any act or omission taken as a result of the information contained in this document.
Any decision made by a party after reading this document shall be on the basis of its own research and not be influenced or based on any view or opinion
expressed by BOI either in this document or otherwise. This document does not address all risks and cannot be relied on for any investment contract or
decision. A party should obtain independent professional advice before making any investment decision. Expressions of opinion contained in this document
reflect current opinion as at 20th August 2019 and is based on information available to BOI before that date. This document is the property of BOI and its
contents may not be reproduced, either in whole or in part, without the express written consent of a suitably authorised member of BOI.
The Governor and Company of the Bank of Ireland is regulated by the Central Bank of Ireland. In the UK, The Governor and Company of the Bank of Ireland
is authorised by the Central Bank of Ireland and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and
the Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by the
Financial Conduct Authority are available from us on request. The Governor and Company of the Bank of Ireland is incorporated in Ireland with limited liability.
Registered Office 40 - Mespil Road, Dublin 4, Ireland. Registered Number C1.You can also read
